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Naked Economics Chapter 1 Study Guide

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Chapter 1: Issue and Explanation

Issue 1 (Paragraph 1): Reduce the sugar subsidy are welcome by consumer but all sectors should relook at the subsidy scheme. Reduction of sugar subsidy will cause the supply curve shift to the left from S1 to S2. When the production quantity is reduced, the market equilibrium price will be still increasing as the reason of the demand more than the supply. Besides that, reduce sugar subsidy will contribute to the increase of production cost because demand is greater than supply. While the demand curve remain same because reduce of sugar subsidy does not influence consumer of sugar. So, demand is inelastic for sugar. This situation lead to shortage of sugar supply.

Economic Concept: Chapter 4 - The Market Forces of Supply and Demand …show more content…

Demand curve are downward slopping because according to law of demand, when price increase, quantity demanded will decrease. This relationship shows that price and quantity demanded are inverse relationships. The S1 represents supply curve that shows the relationship between the quantity supplied (Q1) and sugar price (P1). Supply curve are upward slopping because according to the law of supply, when price increase, quantity supplied will increase. This relationship shows that price and quantity supplied are direct relationships. Besides that, demand is inelastic when the elasticity is less than 1, so that the quantity moves are less than the price.

Issue 2 (Paragraph 2): Fomca chief executive officer Datuk Paul Selvaraj said that there was a need to relook at the overall subsidy scheme because it would not be sustainable in the long

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